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Gap Will Spin Off Old Navy, Its Stronger, Lower-Priced Brand

(Bloomberg)—Gap Inc. rose as much as 23 percent in late U.S. trading after announcing plans to spin off its better performing Old Navy brand into its own public company.

Key Takeaways

The remaining company -- which still needs a name -- will consist of the namesake Gap brand, Athleta, Banana Republic, Intermix and Hill City. It will have annual revenue of about $9 billion, compared to Old Navy’s $8 billion, the company said. As part of the reorganization, the company will slash the store count of the struggling Gap brand by closing 230 locations over the next two years. These closures will erase $625 million in sales. In November, the company said it may close hundreds of stores that don’t fit its “vision” for the Gap brand. A month later, it announced it would shutter a three-story location on Manhattan’s Fifth Avenue. The Gap brand has struggled as part of a broader slump for brick and mortar retailers, even as the lower-priced Old Navy brand has resonated with discount shoppers. In the latest quarter, Old Navy’s same-store sales were flat, while Gap and Banana Republic sales were negative. Art Peck, who’s been leading parent company Gap, will maintain that role at the new company. Following the split, Sonia Syngal, now CEO of Old Navy, will lead the standalone company. The transaction is expected to be completed in 2020, if it gets approval.

Market Reaction

The shares rose as much as 23 percent in after-hours trading in New York. For the company statement, click here.

To contact the reporter on this story: Aviel Brown in New York at [email protected] To contact the editors responsible for this story: Anne Riley Moffat at [email protected] Lisa Wolfson